Fitch Affirms 16 Classes of LBUBS 2007-C2

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed 16 classes of LB-UBS Commercial Mortgage Trust (LBUBS) commercial mortgage pass-through certificates series 2007-C2. A full list of rating actions follows at the end of this ratings action commentary.

KEY RATING DRIVERS

The affirmations reflect sufficient credit enhancement of the remaining classes relative to Fitch's expected losses. Fitch modeled losses of 5.7% of the remaining pool; expected losses on the original pool balance total 15.2%, including $426.5 million (12% of the original pool balance) in realized losses to date. Fitch has designated 27 loans (16%) as Fitch Loans of Concern, which includes four specially serviced assets (1.4%).

As of the July 2015 distribution date, the pool's aggregate principal balance has been reduced by 43.7% to $1.99 billion from $3.55 billion at issuance. Office properties account for 64.1% of the pool balance, with three of the top four loans secured by Washington DC metro office buildings (31%), and the second largest loan secured by the iconic Willis Tower (16.9%; f/k/a Sears Tower) . There are five defeased loans (10.8%). Interest shortfalls are currently affecting class A-J and classes K through T.

RATING SENSITIVITIES

The Rating Outlooks on classes A-3 and A-1A are Stable due to sufficient credit enhancement, continued paydown, and increased defeasance. The Negative Outlook on class A-M reflects above-average loan concentration concerns, with the top four loans representing 47.8% of the pool and the top 15 loans representing 71.7%. In addition, the Negative Outlook reflects concerns on several of the top 15 loans including low debt service coverage ratios (DSCR), plus major tenant vacancies and rollover risks. Should actual losses exceed Fitch expectations the class may be subjected to future downward ratings actions.

The rating on class A-M will be capped at 'Asf' for any future rating actions due to previous interest shortfalls. According to Fitch's global criteria for rating caps, Fitch will not assign or maintain 'AAAsf' or 'AAsf' ratings for notes that it believes have a high level of vulnerability to interest shortfalls or deferrals, even if permitted under the terms of the documents (for more information please see the full report titled 'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions', dated May 28, 2014, at www.fitchratings.com).

The largest contributor to expected losses is the Watergate 600 loan, the third largest loan in the pool (6.6% of the pool), which is secured by a 12-story, 289,286 SF office building in Washington, DC. Occupancy has been stable, reporting at 98% per the June 2015 rent roll, compared to 99% for both December 2014 and 2013, and 100% at issuance. The two major tenants at the property include Atlantic Media (65% net rentable area [NRA]) whose lease is through 2023, and Blank Rome LLP (29% NRA) whose lease expires in December 2018. The subject loan matures in April 2017.

The year end (YE) 2014 net operating income (NOI) for the property had declined 7% compared to YE 2013, primarily due to 54% decline in reimbursement income. The NOI DSCR reported at 1.17x for YE 2014, a decline from 1.27x and 1.28x for YE 2013 and YE 2012, respectively. The most recent three-month YTD March 2015 NOI DSCR improved to 1.32x. As of July 2015, there are approximately $1 million in tenant and leasing cost reserves. The loan remains current as of the July 2015 payment date. Although Fitch calculated losses based on in-place cash flow and a stressed cap rate, losses may be mitigated given the strong location and stable performance of the asset.

The next largest contributors to expected losses are three loans secured by office buildings located in Louisville, KY loan (1.7%), McLeansville, NC (1.6%), and Meridian, ID (1.6%). All three properties are 100% leased to Citicorp North America. / Citigroup Inc. (rated 'A' by Fitch) through December 2019. Citigroup Inc. vacated both the Louisville, KY and McLeansville, NC properties prior to its lease expirations and now subleases the properties to Humana Inc. and LabCorp, respectively. Citigroup continues to occupy the Meridian, ID property. The subject loans all mature in April 2017. The YE 2013 NOI DSCR has reported at 1.17x for the three loans since issuance. The loans remain current as of the July 2015 payment date. Fitch had further stressed the cap rates on the subject properties in its analysis due to the properties' single tenancy and tertiary office markets. Fitch had calculated losses based on in-place cash flow and stressed cap rates; however, losses may be mitigated due to the credit leases expirations over 1.5 years past the loan maturities.

DUE DILIGENCE USAGE

No third-party due diligence was provided or reviewed in relation to this rating action.

Fitch affirms the following classes:

--$1 billion class A-3 at 'AAAsf', Outlook Stable;

--$317.8 million class A-1A at 'AAAsf', Outlook Stable;

--$355.4 million class A-M at 'Asf', Outlook Negative;

--$284.4 million class A-J at 'Dsf', RE 70%;

--$0 class B at 'Dsf', RE 0%;

--$0 class C at 'Dsf', RE 0%;

--$0 class D at 'Dsf', RE 0%;

--$0 class E at 'Dsf', RE 0%;

--$0 class F at 'Dsf', RE 0%;

--$0 class G at 'Dsf', RE 0%;

--$0 class H at 'Dsf', RE 0%;

--$0 class J at 'Dsf', RE 0%;

--$0 class K at 'Dsf', RE 0%;

--$0 class L at 'Dsf', RE 0%;

--$0 class M at 'Dsf', RE 0%;

--$0 class N at 'Dsf', RE 0%.

The class A-1, A-2 and A-AB certificates have paid in full. Fitch does not rate the class P, Q, S and T certificates. Fitch previously withdrew the ratings on the interest-only class X-CP, X-W and X-CL certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 28 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria (pub. 10 Dec 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608

Additional Disclosures

Dodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989467

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989467

Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150813006417/en/

Fitch Ratings
Primary Analyst
Benson Thomas, +1-212-908-0645
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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